Federal Supreme Court applies amended legislation in the reporting procedure for withholding tax

On 15 February 2017, the amendment of the Federal Act on Withholding Tax (VStG) came into force, which entailed a new regulation for interest on arrears in the reporting procedure.

By decision of 24 July 2017, the Federal Supreme Court applied this new regulation in seven cases:

The cases had been suspended as a result of the legislative endeavours and have now been resumed following the entry into force of the revision of the Federal Act on Withholding Tax.

Previous jurisprudence

The reporting procedure according to Art. 20 VStG intends to facilitate dividend payments in the corporate group by not having to pay withholding tax on such disbursements. With the judgment 2C_756/2010 in January 2011, the Federal Supreme Court surprised many companies and consultants when it ruled that the thirty-day reporting period was not an execution period, but a forfeiture period. This meant that when the deadline was missed, the claim to the reporting procedure expired and the withholding tax as well as the interest on arrears became due. The tax paid could be reclaimed, but the interest on arrears could not be recovered and was a definitive charge. As a result, the FTA applied this decision consistently, which led to a lot of "late" reporting and corresponding tax- and default interest calculations of the FTA, and triggered major discussions and appeals.

New legislation

In the seven cases mentioned above, the thirty-day deadline for reporting intra-group dividends was not met and the FTA then demanded payment of the withholding tax and the interest on arrears. With the new legislation, the thirty-day period for filing applications remains in force (Art. 16 para. 1 lit. c VStG); however, in the future, according to the revised Art. 16 para. 2 VStG, the reporting procedure can be applied after this period has expired, provided that the substantive prerequisites are fulfilled and no interest on arrears is owed. According to Art. 20 para. 3 VStG in connection with Art. 64 VStG, the belated reporting can now "only" be fined with a maximum of CHF 5000. The revised Art. 70c para. 1 of the VStG expressly stipulates that this new provision shall also apply to situations "[...] which occurred before the coming into force of the amendments of 30 September 2016, unless the tax claim or the interest on arrears claim is time-barred or has already been legally established before 1 January 2011". These new provisions, which are to be applied retroactively, are binding for the Federal Supreme Court (Art. 190 BV) and thus allow the complainants to make use of the reporting procedure in these cases without having to pay interest on arrears, despite a late application. The complaints were all partially approved, as far as they were admissible.

Final remark

The amended legislation and the adjusted jurisdiction of the Federal Supreme Court let many companies heave a sigh of relief. A long ordeal has come to a good conclusion. The excessive formalism with the strict observance of the thirty-day reporting deadline comes to an end and the more flexible practice that was in force before the unfortunate Federal Supreme Court decision in January 2011 returns. The only thing the companies are still threatened by is a fine and this seems to be more than bearable in comparison. But in any case, the best solution for a company is to consistently comply with the thirty-day reporting deadline.